Friday, February 29, 2008

The Death of Divisibility

Karaoke cases continue to flood the courts of appeals, much like plonk (in the sense of bad wine, not in the sense of female police officers or of adding posters to one’s kill file in UseNet-speak; see here). The most recent addition to the back shelves of copyright case law is Sybersound Records, Inc.. v. UAV Corp., 2008 WL 509245 (9th Cir. February 27, 2008)(Docket No. 06-55221), but it deals not with warbling by amateurs, but instead amateur hour in statutory interpretation of one of the fundamental principles of ownership under the 1976 Act, divisibility.

Divisibility was intended to encourage the easy licensing and assignment of rights in copyright works, by permitting less than the whole of the work to be conveyed. Where there are multiple authors, Congress intended that one co-owner could offer non-exclusive licenses in the whole, but could not offer an exclusive license/assignment/conveyance in the whole without all co-owners' permission, since a sale of all interests in the work would take place: as Chief Joseph of the NezPerce Indians once said: "Suppose a white man should come to me and say, Joseph, I like your horses. I want to buy them. I say to him, No, my horses suit me; I will not sell them. Then he goes to my neighbor and says, Pay me money, and I will sell you Joseph’s horses. The white man returns to me and says, Joseph, I have bought your horses and you must let me have them. If we sold our lands to the government, this is the way they bought them. "

At the same time, Congress permitted one co-owner to convey his or her proportional share in the whole, regardless of whether that conveyance was called an assignment or a license. This follows from the plain language of the statute and from the lack of any process for resolving disputes among co-owners: what if one co-owner wants to sell his or her interest, but the other doesn't want him or her to? Are co-owners stuck together in a marriage that isn't working? Long after non-fault divorces became common, Congress provided for them through divisibility. all was fine for a long time, until a spate of bad decisions. Sybersoundis the most recent.

The parties are competitors in the production and sale of karaoke records. There was a Lanham Act and a RICO claim, but since my knowledge base is sadly limited to copyright, that’s what I will focus on. Plaintiff obtained its rights from TVT Music Publishing, and it is the nature of the rights obtained that sparked the dispute. Here is the court’s description:

Sybersound also claims that UAV, Madacy, Audio Stream, Top Tunes, and BCI are infringing Sybersound's copyrights in several songs by producing karaoke records of these songs without obtaining a license from Sybersound or its copyright assignor, TVT Music Publishing (TVT). Sybersound claims to have acquired an ownership interest in these songs by entering into a written agreement with TVT, an original co-claimant to the copyright of these songs. This written agreement allegedly made Sybersound an “exclusive assignee and licensee of TVT's copyrighted interests for purposes of karaoke use, and also the exclusive assignee of the right to sue to enforce the assigned copyright interest.” According to Sybersound, the copyright holders of these songs had an understanding that each could license only his or her respective shares and that a duly authorized karaoke recording would require a written license from each.

Sybersound bases its copyright infringement claim on the following reasoning: TVT is an original co-claimant or joint copyright holder (co-owner) in nine songs. Such co-owners are like tenants in common, each owning a share of the undivided whole. … Sybersound contends that it stepped into TVT's shoes and became a co-owner in the karaoke-use interest of the copyright when it became the “exclusive assignee and licensee of TVT Music Publishing's copyrighted interests for purposes of karaoke use, and also exclusive assignee of the right to sue to enforce the assigned copyright interests, for both present and past infringements in karaoke exploitation” pursuant to an assignment agreement with TVT. Citing 17 U.S.C. § 201(d)(1), Sybersound asserts standing to sue, as a co-owner, for copyright infringement against the Corporation Defendants that use any of the nine referenced copyrighted songs for karaoke purposes without having obtained a license from Sybersound or TVT…

The court of appeals was having none of this, evidencing once again its failure to grasp an essential element of the 1976 Act, divisibility:

Sybersound's analysis is flawed because, as a co-owner of the copyright, TVT could not grant an exclusive right in the karaoke-use interest of the nine referenced copyrights.

If TVT were the sole copyright owner of the nine referenced songs and had transferred an exclusive karaoke-use interest to Sybersound (assuming such a divisible interest exists), Sybersound would have had standing as the exclusive licensee to sue the Corporation Defendants for infringement. However, even if a karaoke-use is a properly divisible interest in a copyright, TVT is not the exclusive owner of the karaoke-use interest in the copyright. In its Request for Judicial Notice filed concurrently with its motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), Madacy attached copies of copyright registration records from the United States Copyright Office showing that EMI Music Publishing, Ltd., Beyonce Publishing, Scott Storch Music, Careers-BMG Music Publishing, Inc., Xtina Music, Logrhythm Music, and others, are all co-owners of the copyrights in one or more of the nine assigned songs. Thus, unless all the other co-owners of the copyright joined in granting an exclusive right to Sybersound, TVT, acting solely as a co-owner of the copyright, could grant only a nonexclusive license to Sybersound because TVT may not limit the other co-owners' independent rights to exploit the copyright. … Sybersound does not allege that it has received the consent of the other co-owners to become the exclusive licensee for the karaoke-use interest.

Sybersound assumes that because its assignment agreement with TVT says that TVT is transferring all its karaoke-use interests in the copyrights to Sybersound, and says that Sybersound became exclusive assignee of TVT's copyrighted interest in karaoke use and of TVT's right to sue, Sybersound became a co-owner upon execution of the agreement. Sybersound is mistaken. Although the 1976 Copyright Act permits exclusive rights to be chopped up and owned separately, to be effective, the assignment or other type of alienation permitted by 17 U.S.C. §§ 101 and 201(d)(2) must be exclusive. Since TVT's assignment was admittedly non-exclusive, TVT succeeded only in transferring what it could under 17 U.S.C. § 201(d), a non-exclusive license, which gives Sybersound no standing to sue for copyright infringement.

We hold that because Sybersound is neither an exclusive licensee nor a co-owner in the nine copyrights, it lacks standing to bring the copyright infringement claims alleged in the FAC, and, thus, its copyright infringement claims fail.

The Sybersound court, like Gardner v. Nike, and the Second Circuit’s Davis v. Blige, have made co-owners agunot, to each other until a Get, is obtained or a Bet Din, steps in and settles the matter. This isn’t what Congress intended: it intended that co-owners be able to grant non-exclusive licenses without the others’ permission and that they be able to transfer their proportional share in the whole without the others’ permission, in which case the transferee would indeed stand in the shoes of the transferor. It is truly remarkable that such simple, but commercially important points have been destroyed. Our only hope lies with Congress.

9 comments:

Kevin Parks
said...

This decision seems much broader and therefore worse that Blige. In the latter, the result was more defensible based on the court's reasoning that the "retroactive" transfer destroyed the co-owners' "accrued right" to sue for damages.

Here, the court seems to be saying flat out that, retro or not, a co-owner cannot effectively transfer a partial interest. Yikes!

Either I don't get it, or perhaps this decision isn't as ill reasoned as is being described. I think that the court is dead wrong in saying that Sybersound did not have standing. Clearly it did. Moreover, to the extent that the holding can be construed to read that TVT could not break out karaoke use as a discrete interest and grant Sybersound an exclusive license in everything that it had regarding that interest, it is also wrong. But all that gets Sybersound is the right to stand in TVT's shoes as a co-owner of TVT's interest (meaning that TVT can no longer license karaoke to anyone). But I think that the court is correct that Sybersound cannot, by virtue of its license from TVT, claim that it is the sole (i.e., exclusive) party that can license karaoke uses as against licenses (however characterized) issued by the other co-publishers. That would, indeed, mean that they's sold the other publisher's "horses."

The court seems to be withholding judgment on whether karaoke rights are an appropriate division (without indicating the basis of its possible hesitation). Assuming that is a fair division, it's very difficult to see why TVT (originally a nonexclusive owner of karaoke rights among others) should be able to sue, but its assignee should not.

Is the central problem the court's confusion or collapsing of license and assignment? E.g.: "SinceTVT’s assignment was admittedly non-exclusive [well, no], TVT succeeded only in transferring what it could under 17 U.S.C.§ 201(d), a non-exclusive license ...." As assignment doesn't transfer a license.

Calling a fractional license "exclusive" when other co-owners can confer the same kinds of license may involve a play on words. But if TVT has effected an assignment, then it stands in TVT's shoes and should have the same standing.

I agree with Mitch Z. that "it's very difficult to see why TVT ... should be able to sue, but its assignee should not." But the problem is that TVT, a co-owner of the copyright, would NOT have standing to sue. Under 501(b), only the legal or beneficial owner of an EXCLUSIVE right can sue; and TVT by itself does not own an exclusive right; it does not have standing to sue unless its other co-owners join in. It doesn't matter whether the defendants are formal licensees of another co-owner or not; if the other co-owners are not willing to join in the suit as co-plaintiffs, then the defendants are effectively licensees by default of the non-suing co-owners. I think the court got the result right, despite some unfortunate dicta.

I absolutely agree that a non-exclusive licensee can't sue and certainly can't assign a right to sue to another; indeed, unless permitted by the owner of exclusive rights, a non-exclusive licensee can't assign its rights either, which are really only an agreement not to sue. But an exclusive licensee who assigns its divisible rights doesn't have standing to sue for infringement of those rights either unless it has retained a beneficial interest.

The Ninth Circuit started with the conclusion: "a co-owner of the copyright could not grant an exclusive right in the karaoke-use interest of the nine referenced copyrights". But it never made any convincing proof.

Defendants' argument was actually that they might have obtained licenses from the co-owners, therefore plaintiff could not plead under rule 11 that defendants did not have a license from a co-owner. But, license is an affirmative defense and defendants have the burden of proof.

Following Ninth Circuit's reasoning, even a co-owner itself can never sue anyone for infringement, because a co-owner does not own the exclusive rights of the whole work.

Let me elaborate further on the point. Basically, the Ninth Circuit held that a co-owner can never grant an exclusive license to others, because a co-owner does not held the exclusive right of the whole work. The same logic leads to the conclusion that a co-owner itself does not have standing to sue.

Of course, we know that a co-owner has the standing to sue the whole world -- except other co-owners. This is because the co-owner has the exclusive rights to his portion of the copyright -- whatever that is -- say 1%. For the same reason, a co-owner can assign the exclusive rights of its portion of the copyright.

There is nothing to prevent multiple co-owners suing the same defendant multiple times. Whether a defendant wants to join other co-owners to prevent successive suits is the sole responsibility of the defendant.

Ninth Circuit's decision was a simple logical error. It confused the "exclusiveness" in two different contexts:

1) exclusive control of the whole work (which a co-owner does not have);

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